Working Papers
January 1, 0001
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1995
August 1, 1995
Labor Market Representation in Quantitative Macroeconomic Models for Developing Countries: An Application to Cote D'Ivoire
Description: This paper presents a quantitative macroeconomic model that accounts for key features of the labor market in developing countries. Primarily inspired by Côte d’Ivoire, the model contrasts a formal urban sector, where wages are rigidly fixed and employment is submitted to firms profit-seeking behavior, to urban and rural informal sectors, where wages are flexible and employment is affected by fluctuations in formal sector employment. Dynamic simulations assess the impact on key macroeconomic variables of a terms of trade improvement, a public wage decrease, and an exchange rate adjustment, highlighting the roles of rural-urban migrations and capital accumulation in the informal urban sector.
Notes: Also published in Staff Papers, Vol. 43, No. 2, June 1996.
August 1, 1995
Inflation and Income Distribution: Further Evidenceon Empirical Links
Description: This paper examines the effects of inflation and associated financial instability on income distribution. Using both pooled cross country and single country time series models, the level of inflation, inflation variability, and the variability of the nominal exchange rate are shown to impact negatively on overall income equality. Looking at disaggregate measures of income distribution, the issue as to whether inflation is a progressive or regressive tax is found to be negatively correlated with the level of development and the sophistication of the financial structure. The paper argues that these results point towards financial variables as a partial way of rectifying the generally poor explanatory power of both cross-country and time series models of income distribution.
August 1, 1995
The Distributional Effects of Public Expenditure: Update and Overview
Description: It is commonly agreed that economic policies, including budgetary policies, can have potentially strong distributional effects. Traditional economic analysis held that economic policies affected the income distribution primarily through their impact on the rate of growth. More recently, it has come to be recognized that qualitative aspects of economic growth are probably more important than the rate of growth itself. While recent research has confirmed the potential role of expenditure policies as a redistributive tool, it has also shown that redistribution does not necessarily have to come at the expense of economic growth and efficiency. Although there are substantial analytical and technical problems to be faced in the design of equitable and cost-effective public expenditure programs, unfavorable distributional outcomes of these programs can usually be traced more to political and institutional pressures than to purely technical factors.
Notes: An earlier version of this paper was presented at the "VIIth Regional Seminar on Fiscal Policy" of the Economic Commission for Latin America and the Caribbean (CEPAL) in Santiago, Chile, January 23-26, 1995.
August 1, 1995
Do Taxes Matter for Long-Run Growth? Harberger's Superneutrality Conjecture
Description: Harberger’s superneutrality conjecture contends that, although in theory the mix of direct and indirect taxes affects investment and growth, in practice growth effects of taxation are negligible. This paper provides evidence in support of this view by testing the predictions of endogenous growth models driven by human capital accumulation. The theoretical analysis highlights implications of different taxes for growth and investment in these models. The empirical work is based on cross-country regressions and numerical simulations, using a new methodology for estimating aggregate effective tax rates. Results show significant investment effects from income and consumption taxes that are consistent with small growth effects. The results are robust to the introduction of other growth determinants.
Notes: This paper was prepared for a special issue of the Journal of Public Economics in honor of Arnold Harberger.
August 1, 1995
Financial Transactions Taxes
Description: Financial transactions taxes have recently gained attention as a possible means to influence the behavior of financial markets and to reduce destabilizing capital flows. One variation is a tax on all foreign currency conversions, often termed a “Tobin tax.” This paper suggests that these taxes would probably not produce the desired effects and would be difficult to design and implement. It is unclear that the possible advantages in reducing some short-term speculative trading would outweigh the possible disadvantages in impairing the efficiency of financial markets. From an administrative perspective, without a broad international consensus and application, these taxes are likely to be easily avoided.
Notes: This paper is a revised version of a background paper prepared for the Fund's International Capital Markets--Developments, Prospects, and Key Policy Issues study of May 1995. It also analyzes the effects of the "Tobin tax."